Revenue Tax Briefing

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Revenue Tax Briefing Issue 47, April 2002

Finance Act 2002 - Capital Gains Tax – Changes

Capital Gains Tax

Section 59 amends Section 598 TCA 1997. That section provides a measure of relief from capital gains tax where an individual, having attained the age of 55, disposes of certain business assets or shares in his or her family company. The section is being amended so that any land, machinery or plant which the individual owns personally, but which are used by his or her family company for the purposes of its trade can, in certain circumstances, qualify for the relief. One of the requirements is that such assets be disposed of at the same time and to the same person, as the shares in the family company. Section 598 is also being amended so that land, which has been let in the period of 5 years prior to its disposal under a compulsory purchase order (CPO) for the purposes of road-building or road-widening but prior to its first letting was farmed for 10 years by the person making the disposal, also comes within the relief.

Section 60 amends Section 600A TCA 1997. Section 600A gives, in certain circumstances, a deferral of capital gains tax arising on the disposal of a residential premises which is let. One of the conditions is that the proceeds from the disposal are re-invested in certain other similar premises. The amendment to the section provides firstly that the premises being disposed of can have any number of residential units and secondly that the replacement premises must contain at least the same number of residential units, but not less than 3 such units.

Section 61 amends Section 605 TCA 1997. That section provides for a deferral of capital gains tax liability on the disposal of assets under a CPO if the proceeds are reinvested in certain other assets. In general terms both the original assets and the replacement assets must either be fixed assets of a trade, or land or buildings, which are not assets of a trade. (It should be noted that under Section 652 where the asset disposed of is development land, the capital gains tax deferral is only available if the land is subject to the CPO for the purposes of road construction or widening). The amendment to Section 605 allows a person who is disposing of let land under a CPO for road-building or road-widening to qualify for roll-over relief if:

  • In the 10 years ending with the time the land was first let, the person farmed the land
  • The first letting took place within 5 years ending with the disposal, and
  • The proceeds are re-invested in land, which the person will farm or in fixed assets of another trade.

Section 62 amends Section 542 TCA 1997. That section provides, inter alia that, for capital gains tax purposes, the time of a disposal of land under a CPO, where there is no contract, is the earlier of the time the authority concerned enters on the land and the time at which the compensation is agreed. The capital gains tax liability on the disposal arises for the year of assessment in which the disposal is treated as being made. This is being amended so that that the capital gains tax liability will not arise in respect of such a disposal until the year of assessment in which the compensation is received where:

  • The disposal is under a CPO and for the purposes of road building or road widening
  • The person making the disposal is engaged in farming and
  • Immediately before the disposal, the land was used for the purposes of farming.

Section 63 amends Section 980(3) TCA 1997 which requires a purchaser of certain assets to retain 15 per cent of the consideration to be paid to the vendor, unless the vendor produces a certificate issued by the Revenue Commissioners. The amount of such consideration, above which the section applies, is being increased from €381,000 to €500,000.